Who Needs a Special Needs Trust?

A Special Needs Trust (SNT) is a powerful legal tool designed to protect the financial future of individuals with disabilities while preserving their eligibility for essential government benefits. If you have a loved one with special needs, understanding who can benefit from an SNT is crucial for ensuring their long-term security and well-being.

Understanding Special Needs Trusts

A Special Needs Trust is a legal arrangement that holds assets for the benefit of an individual with disabilities. These funds can be used for a variety of expenses that improve quality of life, such as:

Medical care not covered by Medicaid
Education and vocational training
Transportation
Assistive technology
Recreation and entertainment
Personal care assistance

The key benefit of an SNT is that it allows a person with disabilities to receive financial support without disqualifying them from means-tested government benefits like Supplemental Security Income (SSI) and Medicaid.

Who Should Consider a Special Needs Trust?

Many families wonder if a Special Needs Trust is necessary for their situation. Below are some common circumstances where an SNT is highly beneficial.

1. Individuals Receiving Government Benefits

Anyone who relies on SSI, Medicaid, or other public benefits should consider an SNT. These programs have strict income and asset limits, and inheriting money directly can disqualify a person from receiving benefits. By placing assets in a Special Needs Trust, the individual can continue receiving benefits while still having access to additional financial support.

2. Parents or Guardians Planning for a Child with Disabilities

If you are a parent, grandparent, or legal guardian of a child with special needs, an SNT ensures that your child will be financially supported after you are gone. Without an SNT, an inheritance could unintentionally disrupt their eligibility for government assistance.

A Special Needs Trust can be funded through:

Life insurance proceeds
Retirement accounts
Inheritances or gifts from relatives
Settlements from personal injury cases

3. Individuals Expecting a Financial Gift or Inheritance

If a disabled individual is expected to receive a large financial gift or inheritance, an SNT can help protect these funds. Instead of giving assets directly to the individual, family members can contribute to the trust, ensuring the person's long-term financial security while keeping government benefits intact.

4. Personal Injury Settlement Recipients

Individuals who receive a personal injury settlement due to a disability-causing accident often need to safeguard their funds. Without an SNT, a large settlement could exceed the asset limits for government programs, leading to a loss of crucial benefits. An SNT allows the individual to use the settlement for necessary expenses while maintaining eligibility for Medicaid and SSI.

5. Individuals with Disabilities Who Cannot Manage Finances

If an individual is unable to manage money independently due to cognitive impairment, mental illness, or developmental disabilities, an SNT ensures responsible management of their funds. A trustee is appointed to oversee the trust and make distributions according to the beneficiary's needs.

Types of Special Needs Trusts

There are several types of Special Needs Trusts, each serving different purposes depending on the source of funding and the beneficiary's specific circumstances. Understanding these distinctions can help families and caregivers make informed decisions.

1. First-Party Special Needs Trust (Self-Settled Trust)

A First-Party Special Needs Trust is funded using the disabled individual's own assets. This type of trust is commonly used when the individual receives a:

Personal injury settlement
Inheritance
Back pay from Social Security Disability benefits

These trusts must be irrevocable, meaning they cannot be changed once established, and they must include a Medicaid payback provision. This means that upon the beneficiary's death, any remaining funds in the trust must be used to reimburse Medicaid for the care provided.

2. Third-Party Special Needs Trust

A Third-Party Special Needs Trust is funded by someone other than the disabled individual, such as parents, grandparents, or other relatives. This type of trust is often created as part of an estate plan and can be funded with:

Life insurance proceeds
Family gifts
Retirement accounts
Other financial resources

Unlike a First-Party SNT, a Third-Party SNT does not require Medicaid payback. This makes it a preferred option for families planning for a loved one's long-term needs.

3. Pooled Special Needs Trust

A Pooled Special Needs Trust is managed by a nonprofit organization that pools assets from multiple beneficiaries while maintaining separate accounts for each person. This option is often used when there is no family member available to act as trustee.

Benefits of a Pooled SNT include:

Professional management of trust assets
Lower administrative costs compared to individual trusts
No requirement for family members to manage funds

However, like a First-Party SNT, a Medicaid payback provision applies.

Types of Special Needs Trusts and Their Key Differences

Type of Special Needs Trust	Who Funds It?	Medicaid Payback Required?	Best For
First-Party SNT	Funded with the disabled individual's own assets (e.g., inheritance, personal injury settlement)	Yes	Individuals receiving a large settlement or inheritance who need to protect government benefits
Third-Party SNT	Funded by parents, relatives, or friends	No	Parents or family members planning for a disabled loved one's long-term care
Pooled SNT	Managed by a nonprofit, funded by multiple beneficiaries	Yes	Individuals without a suitable trustee or those with smaller assets to manage

Choosing the Right Trustee for a Special Needs Trust

Selecting the right trustee is a crucial decision, as this person or entity will be responsible for managing the trust assets and making appropriate distributions. Trustees can be:

Family members who understand the beneficiary's needs
Professional trustees, such as a bank or trust company, offering financial expertise
Nonprofit organizations that specialize in managing SNTs

A trustee must follow strict legal guidelines to ensure that distributions do not affect government benefits. Many families opt for a corporate trustee or co-trusteeship, where a professional trustee manages financial matters, while a family member handles personal decisions.

Benefits of Establishing a Special Needs Trust

Creating a Special Needs Trust offers long-term financial protection for individuals with disabilities. Some of the key benefits include:

Preserving eligibility for government benefits such as Medicaid and SSI
Providing financial security without affecting public assistance
Ensuring responsible money management by appointing a trustee
Allowing for quality-of-life enhancements that Medicaid or SSI may not cover

A properly structured SNT can relieve families of financial stress and ensure that a disabled loved one maintains a comfortable and independent life.

Contact an Attorney for Special Needs Trusts

Setting up a Special Needs Trust requires careful planning and legal knowledge. A mistake in structuring the trust could lead to unintended financial consequences, including loss of benefits. An experienced attorney can help:

Determine the right type of Special Needs Trust for your situation
Ensure compliance with government regulations
Appoint a responsible trustee
Incorporate the SNT into a comprehensive estate plan

If you need guidance in creating a Special Needs Trust, contact Heritage Law Office for a consultation. Call us at 414-253-8500 or use our online form to schedule an appointment.

Frequently Asked Questions (FAQs)

1. What expenses can a Special Needs Trust pay for?

A Special Needs Trust can cover a wide range of expenses that improve the beneficiary's quality of life, including:

Medical treatments not covered by Medicaid
Education and job training
Personal care assistance
Assistive technology and mobility devices
Travel, entertainment, and recreational activities
Housing and home modifications (with some restrictions)

The funds cannot be used for basic necessities like food and shelter if the individual is receiving Supplemental Security Income (SSI), as this could reduce their benefits.

2. Can a Special Needs Trust be revoked or changed?

A First-Party Special Needs Trust is irrevocable, meaning it cannot be changed or revoked once established. However, a Third-Party Special Needs Trust may have some flexibility, depending on how it was drafted. Many families work with an attorney to include provisions that allow for modifications if laws or circumstances change.

3. How does a Special Needs Trust affect Medicaid and SSI eligibility?

A properly structured Special Needs Trust does not count as an asset for Medicaid and SSI purposes. This allows the beneficiary to continue receiving essential government benefits while also having access to additional financial support for approved expenses. If the trust is not set up correctly, it could unintentionally disqualify the individual from receiving benefits.

4. Who can act as the trustee of a Special Needs Trust?

The trustee of an SNT can be:

A family member (such as a parent or sibling)
A corporate trustee (such as a bank or trust company)
A nonprofit organization (in the case of a Pooled Special Needs Trust)

The trustee is responsible for managing the trust's assets and ensuring that distributions comply with legal guidelines. Many families choose to appoint a professional trustee to handle financial management while keeping a family member involved in personal decision-making.

5. When should a Special Needs Trust be established?

It's best to establish a Special Needs Trust as early as possible, especially if:

You have a child with disabilities and want to plan for their financial future
A disabled individual is about to receive an inheritance or settlement
You want to ensure long-term care and financial security for a loved one

Planning ahead prevents potential issues with government benefit eligibility and ensures that the beneficiary's needs are met without financial disruptions.